Facebook-sponsored digital currency Libra is determined to get the green light by European regulators next year, despite the numerous concerns raised by EU finance ministers, a senior representative of the project told EURACTIV.com.
“We share many of the concerns that are being raised,” said Dante Disparte, deputy chair of the Libra project and head of policy. But he added that “the political sentiments towards the project are, in many respects, completely unfounded.”
Disparte was in Brussels this week to meet with EU officials and participate in an event in the European Parliament.
Last June, Facebook announced that it will launch in 2020 a ‘stablecoin’, a digital currency backed by the “best performing independent currencies”, to offer cheap and fast means of payment to users.
But since then, regulators and decision-makers across the world have warned that the project posed serious risks to financial stability and questioned countries’ monetary sovereignty.
Against this backdrop, EU finance ministers agreed on Thursday (5 December) that “all options should be on the table, including any measures to prevent the creation of unmanageable risks by certain global ‘stablecoins’.
But Disparte confirmed that the association behind Libra is determined to obtain the authorisation next year.
“Our plans remain: we’re focused on 2020,” he said. “That may not mean that in every country in the world”, he said, but Europe is certainly part of the goal.
Regulators are still calibrating the opportunities and risks brought by ‘stablecoins’ like Libra, a digital token backed by a basket of sovereign currencies, considered less volatile than previous crypto-currencies.
“Since the beginning, we have always said that the project would seek to be regulated,” Disparte said, including rules on operational readiness, compliance and governance.
And that includes risk management, financial compliance, operational security issues, and policy.
The engagement is “very positive,” he said.
Their base camp to launch the charm offensive will be Switzerland, a country with a “sober” approach to stablecoins.
As the Libra association is “trying to call this side of the Atlantic home,” their message for Europe is clear: “Don’t push Fintech innovations of any size offshore from the European market because, in the long run, it is going to be bad for the economic competitiveness of the region”.
They ask for the “same risks, same rules” principle that regulators defend in Europe.
“If we are building a 21st-century payment network, then regulate it in the same way you would do with other payment networks,” Disparte argued.
Concerns, scandals undermine trust
But the concerns around Libra derive from their main sponsor. The numerous scandals affecting Facebook, especially in the context of the Cambridge Analytica case, broke the trust between social media, legislators and citizens across the world.
As a result, the company does not appear to be suitable to handle a payment system that could deploy directly to its 2.4 billion users across the world, with little information given to regulators and interested companies, as officials and sources close to the sector said.
The European Commission sent two sets of questionnaires to find out more details about the project. Meanwhile, around a quarter of firms that initially joined the company left the project, including Paypal, Visa or Mastercard. Some explained that the promoters had failed to clarify key aspects, including how to deal with data.
“Fears are understood,” Disparte said. But Libra should not be dealt with differently than other payment networks reaching millions of consumers that don’t destabilise the market, he argued.
“I can’t change the fact that people may not like the messenger of Libra,” Disparte said, referring to Facebook, but “to get the message is important”.
And that message is achieving financial inclusion.
Disparte played down the criticism of the project because of its vagueness.
“Ask any startup if they could answer the types of questions we have received to the satisfaction of the world. It’s not possible yet,” he said.
“I would say ‘judge us by the outcome a year from today’, in terms of where we stand and whether we have succeeded or not,” he added.
For the next six to nine months, the project will progress on three fronts: governance, the technology and the regulatory approval.
The organisation currently has 21 members, but they want to sign up a total of 100 firms.
Every association member, Desparte said, will have the same exact powers and privileges. “Facebook is on the same footing as a nonprofit or any other member of the project”.
Big changes, for example in relation to the basket of currencies, amending the code of the organisation, or improving the technology, should pass through the general council, where decisions will be adopted by a supermajority of 66 members.
But the five-member executive board will run the day-to-day business. It will be in charge of the “operational action”, giving the mandates for the executives, Disparte admitted.
And one of the board members will be Facebook’s David Marcus.
Libra promoters see their initiative as an instrument for financial inclusion.
The world is not doing enough to ensure financial access because “we’re using tools designed 50 years ago to serve people in the 21st century,” Disparte said
Around 1.7 billion people don’t have a bank account, and a total of 1.3 billion are currently underserved by financial institutions, but a billion of them have an internet-connected phone.
Behind these numbers and altruistic purposes, there is a business case.
“If you think of that market size, Libra at core represents a market expansion opportunity. It’s about pulling more people into basic services where a mobile phone becomes a payment endpoint.”
And the most obvious one is remittance, a $700 billion business yearly. The average fee is around 7%, with a few global options.
“We think we can get our fees much below the 3% target,” in line with the UN’s development goals, Desparte said.
Besides that, the association does not intend to offer direct options for customers, but rather establish an institutional framework and a global payment network, where firms could offer their own digital wallets.
“The plan, at least the design principle, from the association level is to build a network that can support these types of peer to peer payments at near free or near-zero cost,” Disparte explained.
It would be up for the firms operating in Libra’s ecosystem to decide what additional services they provide and how they charge for them.
Libra’s arrival was also a ‘wake-up’ call for central bankers, as their monetary sovereignty was at stake. The European Central Bank and some other central banks are exploring the feasibility of launching their own stablecoins. “This is a fantastic idea,” Disparte said.
“The ‘Libra effect’, if you will, has been to force people to look in the mirror long and hard about what innovation should look like if we want to serve our citizens better in the 21st century,” he added.
But he added that the main case central bankers are trying to support is a wholesale service, to connect central banks and the banking systems “more efficiently”.
“They are not really thinking about retail household level applications of these technologies. And that is, frankly, where we’ll have the biggest impact,” he said.
[Edited by Zoran Radosavljevic]